The Philippines to this day is an excellent destination for serious investment, but there are risks that could unsettle the economy.
This was the message of Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. In his keynote speech before participants of the Euromoney Philippines Investment Forum in Taguig City on Tuesday.
“In making relative value judgments, prudent investors ask themselves three questions: Is there upside potential? Are the returns sustainable? And are the downside risks manageable? “ he said.
“In the case of the Philippines as an investment destination, my answer to these questions would be, YES. I believe the Philippine economy continues to offer a convincing case for investment and sustained growth. I say this with confidence because the Philippines has a good solid track record,” he added.
The BSP chief said the Philippines’ macroeconomic environment has been marked by solid economic growth and low inflation, while its banking system has also been an enabler of economic growth.
In the meantime, the country’s external liquidity position has been robust, he said.
“All-told, ladies and gentlemen, the Philippine economy continues to enjoy a position of relative strength. And this has not been unnoticed by global investors. We have had our share of surges in capital inflows in search of yield. And while, some of these have come and gone, a large portion of the inflows have stayed and remain invested in our domestic assets,” he added.
“But what I wish to emphasize … is that the Philippines is a destination not only for flighty capital. The Philippines is, more importantly, a destination for serious investment,” he said.
Tetangco said policy actions of advanced economies (AE), shifts in Chinese economic policies, and the Brexit are the risks that could possibly unsettle the Philippines. “These risks impact us in the short-term through financial market volatility and in the long-term possibly through aggregate demand dynamics.”
The BSP governor said the Philippines is affected by the policy actions of advanced economies, noting that the most pressing of these are the timing of the next interest rate hike of the Federal Reserve and the magnitude of any further easing from the Bank of Japan and the European Central Bank.
“As the markets digest any pronouncements from AE policy makers, we will continue to experience a toggling between risk on and risk off market behavior, which always creates noise in financial markets,” he said.
A second potential source of vulnerability are shifts in Chinese economic policies –from a growth model that relies on exports and fixed investments to one which is driven by domestic demand, and to a more market-oriented (and weaker) RMB, he noted.
“Early expectations were that the shift to domestic demand would result in significant slowing in Chinese growth, which could dampen exports of its trading partners, such as the Philippines,” he said.
A third risk is Brexit, Tetangco noted, saying the direct impact on Philippines of a slowdown in the United Kingdom would be minimal, given that the country’s exports to the UK account for only 0.8 percent of total exports.
On the domestic front, the BSP chief said the Philippines have to contend with natural calamities.
“While no one can fully prepare for the wrath of nature, the country has put in place policies that will help ensure we have adequate supply of staple foods, particularly rice,” he said.
“In short, ladies and gentlemen, the Philippines is not immune to risks but our view is that these risks right now are manageable,” he added.
He said the Philippines means business. While the challenges to the investment environment appear formidable, the government’s collective vigilance and prudence will help achieve sustainable growth, as well as stability.
“I hope that in the time that had been given to me, I have been able to show you that the Philippines presents excellent relative value, an investment choice that will allow you to achieve your target risk/return and more,” he said.